IMF further raises growth forecasts for RP
The International Monetary Fund has again raised its growth forecast for the Philippines for 2010 and 2011, citing improving domestic demand and business sentiment in the country and the rest of Asia.For this year, the IMF raised its growth projection to 7 percent from the 6 percent forecast made in July and the 3.6 percent announced in April. For 2011, the country is now expected to grow by 4.5 percent, better than the original projection of 4 percent. In its latest outlook on economies across the globe, the IMF said the revised projection for the Philippines mirrored the improved outlook for other economies in Asia. So far this year, IMF said, Asian countries showed faster-than-expected rebound from last year's global turmoil. "Asia entered the global crisis on a strong footing and is continuing to lead the global recovery," the IMF said. In the case of the Philippines, the domestic economy grew by 7.9 percent in the first half, beating most expectations. This prompted the government to believe that even its official growth target for the year -- set at 5 to 6 percent -- was already conservative. The IMF said a robust increase in domestic demand had to do with sharp expansion of the Philippine and other Asian economies in the first half. "In most parts of the region, resilience in domestic demand—thanks in part to proactive policy stimulus—has offset the drag from net exports," the IMF said. Exports by the Philippines and other Asian countries have so far rebounded this year after last year's contraction. However, economists said, the growth was still short of making export revenues revert to the pre-crisis levels. This is because recovery of the United States and Europe, major export markets, from the recession in 2009 was only moderate. Demand from these countries, although improving, thus remains volatile.
Still, IMF said Asian countries have become less dependent on Western economies, given that their domestic demands have been growing. Moreover, rising investments in Asian countries are helping sharpen their rebound.
Capital controls not being considered by central bank
THE CENTRAL BANK is not blocking the fundamental strength of the peso and is not contemplating capital controls because inflows are manageable, an assistant governor yesterday said. The Bangko Sentral ng Pilipinas (BSP) was however smoothing sharp moves in the peso, which has risen more than 6% this year to its strongest against the dollar in more than two years, Cyd Amador told Reuters in an interview. "We are not countering any fundamental shift of trend in the movement of the peso," Ms. Amador said. "We will stay true to our fundamental principle insofar as intervention in the foreign exchange market is concerned, mainly just to smoothen destabilizing fluctuations but not running against the trend movement of the exchange rate." The peso strengthened to P43.50 per dollar after the comments, its strongest since June 2008. It closed at P43.505 yesterday, up from Tuesday’s P43.76. (Story on S2/1) Investors have been chasing returns in fast-growing emerging markets, and the inflows have resulted in currency appreciation in Asia and Latin America. In response, some central banks have intervened to cap currencies to protect exporters, and some have taken steps to control inflows. Brazil, whose finance minister has warned of an international "currency war," on Monday doubled a tax on foreign investors buying local bonds to 4% to curb a strong real currency. "The global financial system is flush with liquidity. It has to find somewhere to go. With the lackluster performance of the advanced economies, the funds would naturally gravitate towards those with brighter growth prospects in the emerging markets," Ms. Amador said. The BSP was not looking at capital controls at the moment, she said, as it had other tools to manage inflows and currency strength, such as early payment of foreign debt, prudent reserve management and foreign exchange regulatory reforms. "It is not something that is being discussed," she said. "Some of the flows that are driving the peso strength is something that we think could be a stable feature, like remittances," she said, adding portfolio flows and direct investments appeared to be at respectable levels. Foreign investor buying has helped drive the stock market to a run of record highs, and latest data shows foreign portfolio fund inflows hit a 15-month high in August. The stock market has risen by 37.5% this year, including a 15% gain in September. The central bank expects remittances from Filipinos overseas to grow by 8% this year from 2009’s record $17.3 billion. "When we look at measures based on our studies that we have been making on whether there are initial signs of overheating or misalignments in the asset market, we don’t think we are seeing this," Ms. Amador said. "We are watchful and attentive, but at the moment we don’t think there should be any significant departure from the way we are handling liquidity flows." The Philippines expects the economy to grow faster than a target of 5-6% this year, supported by a recovery in trade and remittances, and then increase to 7-8 percent in 2011. The central bank also expects inflation to remain benign, giving it flexibility in setting monetary policy. The central bank is expected to leave its policy rate at record low of 4.0% at a policy review today. The policy rate has been at 4.0% since July 2009, with the Philippines one of the few countries in Asia not to have raised rates since the global financial crisis. | 
